Russian Financial dealings and Iraq's debt
Russia may trade debt write-off for Iraqi oil deals
Moscow still keen to protect contracts signed before war
Putin expresses willingness to talk with Paris Club of international creditors, but bottom line is still safeguarding his country’s interests
Dec 20, 2003
Sergei Blagov
Special to The Daily Star
MOSCOW: Russia has indicated willingness to consider restructuring Iraq’s debt through the Paris Club of international creditors, but Moscow is keen to protect its oil contracts in Iraq.
President Vladimir Putin told US President George W. Bush’s special envoy on Iraq, former US Secretary of State James A. Baker, that Russia would discuss Iraqi debt write-off. Russia has expressed readiness to join the Paris Club talks “in the nearest future” in order to reduce Iraqi debt burden, the Kremlin press service said in a statement after talks Thursday between Putin and Baker.
“The negotiating position the Russian side would be determined by the economic interests of Russia and its companies in Iraq,” the statement said.
Moscow prioritizes its earlier Iraqi oil deals, according to Russian officials.
“The future of Russian oil contracts in Iraq should be decided by the Iraqi legitimate government,” Deputy Foreign Minister Yuri Fedotov said Friday. “Oil contracts to tap Iraqi oil fields remain in limbo, but Russia believes that these contracts are not annulled.”
Moreover, Abdel-Aziz al-Hakim, the head of Iraq’s Governing Council, told the Russian RIA news agency in Baghdad that he was going to visit Moscow soon. The two nations “signed many contracts and we seek to develop them in the future,” he was quoted as saying on Thursday. Russia could still play an important role in Iraq, Hakim reportedly said. On Friday, the Russian Foreign Ministry confirmed Hakim’s upcoming visit to Moscow, but no details were disclosed.
Russia, owed $8 billion by Iraq, previously said it had no intention of writing off debt after learning it could not participate in the US-funded reconstruction projects. Some inflation-adjusted estimates of Russia’s Iraqi debt put the figure at $12 billion.
Moscow was upset by the US decision to bar the countries that failed to support the US-led invasion of Iraq including Russia, France, Germany and Canada from competing for $18.6 billion in contracts to rebuild Iraq. Some Russian officials have indicated that Moscow could also retaliate against the US decision to bar Russian firms from competing for contracts to rebuild Iraq by switching its oil exports to euro-denominated prices.
Moscow’s involvement in Iraq dates back to the cold war era, when the Soviet Union cultivated client states in the Middle East. Thousands of Soviet experts worked in Iraq, and Moscow used to be Baghdad’s top arms supplier.
Yet of all the countries excluded from bidding, Russia may have the most at stake because it wants to develop the oil-rich West Qurna and other fields containing some of the world’s largest deposits. A 23-year, $20 billion deal to develop the West Qurna field was signed in 1997 between Iraq and a LUKoil-led consortium, including Zarubezhneft and Russia’s Mashinoimport. Under that deal, the Russian group will develop reserves put at 7 billion to 8 billion barrels. Saddam’s government canceled the contract in February 2003, ahead of the war.
LUKoil insists that the contract is still valid.
Earlier this year, LUKoil’s president, Vagit Alekperov, reportedly that he was “grateful” to Putin for bringing up its Iraq contracts at high-level discussions with Washington.
Dmitry Dolgov, LUKoil chief spokesman, told The Daily Star that the deal was “not affected” by the Pentagon’s decision to bar war critics. West Qurna contract was signed between LUKoil and Iraqi government, it is still legitimate, he said. According to international norms, “regime changes” do not constitute a reason to annul such contracts, Dolgov added.
“In strict legal terms, the project exists, and now we are waiting for normalization in Iraq and establishment of internationally recognized Iraqi government so as to negotiate with this government,” Dolgov said. However, he made clear that in the event of “complications,” LUKoil does not rule out challenging attempts to annul the West Qurna contract in international courts.
Russia was also Iraq’s largest supplier in the UN oil-for-food program. Of the $18.3 billion in oil-for-food contracts approved by the Security Council since the program began, some $4.2 billion went to Russia.
Eleven Russian oil companies were buying tens of million barrels of oil from Iraq’s state oil company SOMO under the UN oil-for-food deal. These include Zarubezhneft, Russia’s state oil company, which was tasked with coordinating purchases from Iraq. The contracts with SOMO were signed by Russia’s biggest oil firm LUKoil, as well as Onako, Sidanko, Sibneft, Alfa Eko, Zarubezhneftegazstroi, Mashinoimport, Rosneft, Nafta-Moskva and MES.
Zarubezhneft has worked in the Middle East since the 1970s, when it was Russia’s leading oil player in Iraq. Zarubezhneft received UN permission to drill 45 exploratory wells in northern Iraq’s Kirkuk oil field. Zarubezhneft also had a contract to drill some 100 wells in the North Rumaila field. Zarubezhneft had expected to clinch a deal to develop the Bin Umar oil field with estimated reserves of 3.3 billion barrels.
Zarubezhneft CEO Nikolai Tokarev conceded earlier that his firm had little chance to keep its earlier deals in post-Saddam Iraq. Zarubezhneft had hoped to develop Iraq’s giant West Qurna field together with Russian oil giant LUKoil. Yet unlike LUKoil, Zarubezhneft has yet to indicate any intention to challenge in international courts the possible loss of West Qurna project, as well as some $200 million lost in other contracts due to the US-led war.
Nonetheless, the firm still has some hopes over Iraqi deals. “Now Zarubezhneft continues to fulfill 10 oil-for-food contracts totaling $72 million; these deals are to be completed in 2004,” a well-placed source at Zarubezhneft told The Daily Star.
Zarubezhneft plans to take part in tenders in Iraq and preparations are under way, the source said.
Yet despite possible Iraqi debt forgiveness trade-off, it remains a matter of debate whether Russian oil companies could secure their earlier Iraqi deals since Moscow has been critical over the US-led war against Iraq calling it as “unwarranted” and “unjustifiable.” Earlier this year, Russian officials warned against the US “fabrication” of finding Iraqi weapons of mass destruction. In response, earlier in December The Washington Times claimed that Russia not only sold Saddam its WMDs, but it showed them how to make them “disappear,” to liquidate weapons arsenals in the event of a military defeat.
Russian reaction over the arrest of former Iraqi leader Saddam Hussein was muted, as Moscow has refrained from welcoming the American success. Saddam’s capture “would contribute to the improving security situation in Iraq and boost the process of political settlement in the country with the active role of the United Nations,” Foreign Minister Igor Ivanov said, adding however that “the fate of Saddam Hussein must be decided by the Iraqi people themselves.”
So far, there have been no expressions of delight or congratulations from Moscow. Moreover, some Russian officials and politicians opted to cast doubt over Saddam’s arrest. “It is difficult to comment on who was really arrested, given that there have been many reports about Saddam’s many doubles,” Russia’s Deputy Foreign Minister Yuri Fedotov has said.
Moscow also warned the United States against imperial ambitions over Iraq.
Putin told a nationally televised question-and-answer session on Thursday that the US-led war on Iraq should have been authorized by the UN Security Council.
“There were no international terrorists in Iraq before the war, while military action without UN Security Council’s sanction can not be viewed as justified, to say the least,” he said.
Asked if he viewed Iraq as a “second Vietnam” for the US, he said great powers and empires had often given way to “feelings of invincibility, greatness, infallibility,” adding: “I hope this will not happen to our American partners.”
Therefore, with a backdrop of Russia’s continued objections against the US-led war on Iraq, it remains to be seen whether Moscow’s possible compromise over Iraqi debt write-off could help Russian oil companies to secure their oil contracts in Iraq.
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